So we are in a seasonally weak time of year for stocks and most certainly we saw that last week with the S&P500 off rather sharply. The index closed the week at 5408 which was down from a close the previous Friday of 5648–a drop of 4.2% in a holiday shortened week. Seasonally this time of year can be wild–many of use can remember really weak September/October time frames–in particular 1987. It is strange that I can remember where I was on ‘Black Monday’ so it was obviously a monumental day for stocks–don’t want to see that again, but who knows.
The 10 year treasury closed the week at 3.71% which was down a sharp 20 basis points from the 3.91% close the previous Friday. Economic news has been critically scrutinized recently in the lead up to next weeks FOMC meeting. Obviously everyone is looking forward to a Fed funds rate cut–just a matter of whether it is 1/4% or 1/2%. Does it really matter much to me? No–I will not do one thing different no matter the size of the cut–I have moved my allocations to preferreds and baby bonds up–reducing the size of treasury’s , CDs and money market holdings. This week we have more economic news that will move markets this week in the consumer price (CPI) and producer price (PPI) indexes.
The Federal Reserve balance sheet assets fell by $11 billion to now stand at $7.11 trillion. We have had the Fed let almost exactly $1 trillion in assets run off the balance sheet in the last year–just another 7 years and we will be back to zero which of course will never happen.
Last week, as might be expected, the average $25/share preferred and baby bond rose by 13 cents. Investment grade issues rose 20 cents, banking issues rose 13 cents, mREITs rose 5 cents and shipping issues rose 21 cents.
Raymond James has a handy one-page weekly list of interest rates, nicely arranged, which gives an idea of relative rates at a point in time without clicking around a lot. “Brokered CDs” are a reality check on the numbers to beat in a declining market. (Spoiler: the “5” key on Mr Market’s numeric keypad is broken.) There should be an update soon.
Weekly Interest Rate Monitor
https://www.raymondjames.com/-/media/rj/dotcom/files/wealth-management/market-commentary-and-insights/bond-market-commentary/weekly_rate_monitor.pdf
Hmm– no Treasuries under 1yr listed.
Great piece Bear thanxx. I have bookmarked, love these kinds of things!
Pfds are not bonds of course but I have seen correlation studies where pfds correlate mostly w Baa, maybe w some ‘extra’ given their place outside the secured/unsecured stack.
So I look at that too. Maybe? Mike Miller/ Rubicon Associates formerly Bridgewater guy who used to write or someone maybe Trapping Value was the one too. Miss Mike good guy, probably out there working hard. He was always so helpful to me. Moody’s Baa thing.. https://ycharts.com/indicators/moodys_seasoned_baa_corporate_bond_yield
I thought this was interesting too SOFR has been matching what LIBOR would have been, much ‘ado about nothing’ the whole transition other than to confuse us. https://www.sofrrate.com/
Too early in the day to tell which direction WTI is going but futures broke the 70.00 support level last week. Does not bode well for oil stocks. This is the only commodity I follow but others here might follow other commodities which are good indicators of which direction the economy is going.
I don’t think oil is a good predictor of the US economy. IMHO, Oil is lately driven by oversupply at OPEC, China’s lackluster economy and transitory odd world events (Libya, tanker attacks, South America, Iran, Russia.) . Over recent years, OPEC had to implement several output cuts to prop up prices. If I remember correctly prices went down after one OPEC production cut and they had to do a deeper cut. ) Now they are wondering if they really want to add output into a weak market.
On a micro-economic level, regular gas is 2.88 locally. I am not a trader, but it looks like there are better opportunities out there than the E&P end of oil. Maybe there will be some merger opps if stock prices fall, but pricing fundamentals look weak.
Bear, it becomes more obvious that it’s not the oil companies contributing to the high price of gas here in Calif. which the governor tries to blame, but the taxes at the state and local level. I paid $4.26 a gallon this past weekend. What is also suspicious is when I checked GasBuddy.com there was an almost uniform pricing at all the gas stations as if they are fixing the price of gas.
Charles-
Gas taxes in CA, yes, but isn’t it true that all gasoline in CA is refined there (no pipelines from out of state), and that’s a big contributor to price? However, now there’s a new wrinkle:
US West Coast Refiners Swap Expensive Iraqi Crude for Cheap Canadian Oil
https://oilprice.com/Latest-Energy-News/World-News/US-West-Coast-Refiners-Swap-Expensive-Iraqi-Crude-for-Cheap-Canadian-Oil.html